The perennially brittle India-Pakistan relations took a hit Tuesday as Prime Minister Manmohan Singh declared that there can be "no business as usual" with Islamabad after the brutal killing of two Indian soldiers a week ago while there was further gunfire along the LoC.

And in a reflection of the anger within the military over the beheading and mutilation of the two soldiers, the head of the Northern Command warned that the Indian Army had "definite plans to retaliate" but would do so when it wanted.

"We have definite plans to retaliate but not in haste and anger, and at the time and place of our own choice," Lt. Gen. K.T. Parnaik told the media in Akhnoor, about 40 km from Jammu.

Pakistani troops violated the ceasefire on the Line of Control (LoC) in Poonch district in Jammu and Kashmir Tuesday evening, an Indian Army official said, adding the fire was returned. This is the fourth incident of ceasefire violation since the brigadier-level flag meeting Monday.

The prime minister made the significant statement at Army Chief General Bikram Singh's residence on the occasion of 65th Army Day, a clear indication that diplomatic ties with Pakistan were headed for a downturn.

"There can be no business as usual after the barbaric act," he said, when journalists asked about the government's move to hold back visa on arrival for senior Pakistani citizens. "Those responsible for the heinous act will be brought to book."

The prime minister was referring to the Jan 8 killing of the soldiers in Jammu and Kashmir, about 600 metres away from the Line of Control (LoC).

One of the soldiers was beheaded and his head taken away by the raiders. The other soldier's body was mutilated. The brutality has outraged India.

Pakistan has denied any involvement in the killings, and accused the Indians of killing two of its soldiers -- one on Jan 6 and another four days later.

Shortly after Manmohan Singh spoke, External Affairs Minister Salman Khurshid said: "It should not be felt that the brazen denials and the lack of appropriate response from Pakistan will be ignored and bilateral relations will be unaffected and that there will be business as usual."

Reading out a prepared statement, he said the Jan 8 killings violated "all norms of conduct". He called the brutality unacceptable and "a grave provocation".

But the minister declined to specify what steps India would take. He said the "specifics of what might be necessary or found useful are decisions that will be taken as we move forward".

After making his statement, Manmohan Singh met President Pranab Mukherjee, the supreme commander of the armed forces, for an hour. No details were available.

"I want to assure the nation that the Indian Army is prepared to face all challenges and foil the designs of the enemy," he said on the occasion of Army Day.

He had Monday called the killing of the Indian soldiers "an unpardonable act" and said his forces reserved the "right to retaliate".

Lt. Gen. Parnaik said there was a lot of anger among army units. "But I pacified them."

Later, speaking to TimesNow television, he said there was a state of "no war, no peace" along the winding LoC, which divides Jammu and Kashmir between India and Pakistan.

But he added that the army "has a system to graduate from this system to a higher form of alert".

He said he had told his men on LoC to "to remain on alert". "If provoked gravely, we have an appropriate response in mind."

As the government and army spoke on similar lines, the second major casualty of the escalating tensions -- after the visa on arrival -- was the Pakistani participation in the Hockey India League (HIL).